Diagnostic testing in Bayesian analysis

Abstract

Purpose

This paper aims to present several Bayesian specification tests for both in- and out-of-sample situations.

Design/methodology/approach

The authors focus on the Bayesian equivalents of the frequentist approach for testing heteroskedasticity, autocorrelation and functional form specification. For out-of-sample diagnostics, the authors consider several tests to evaluate the predictive ability of the model.

Findings

The authors demonstrate the performance of these tests using an application on the relationship between price and occupancy rate from the hotel industry. For purposes of comparison, the authors also provide evidence from traditional frequentist tests.

Research limitations/implications

There certainly exist other issues and diagnostic tests that are not covered in this paper. The issues that are addressed, however, are critically important and can be applied to most modeling situations.

Originality/value

With the increased use of the Bayesian approach in various modeling contexts, this paper serves as an important guide for diagnostic testing in Bayesian analysis. Diagnostic analysis is essential and should always accompany the estimation of regression models.

Citation

Assaf, A.G. and Tsionas, M.G. (2020), "Diagnostic testing in Bayesian analysis", International Journal of Contemporary Hospitality Management, Vol. 32 No. 4, pp. 1449-1468. https://doi.org/10.1108/IJCHM-03-2019-0255